What is Identity Theft?

Identity theft is a crime that refers to any action in which someone wrongfully obtains and uses another person's personal information in a way that involves deception or fraud.

Most cases of identity theft involve financial gain. Unfortunately, most people don't realize how easy it is for criminals to access personal data. These bad guys use both sophisticated and unsophisticated techniques to steal your identity. One popular method is dumpster diving for checks, credit card statements and "preapproved" credit card offers.

​Once a thief obtains your information, they can use it in many ways, including:

Credit card fraud. This includes application fraud (opening a new card in your name and running up a bill) and existing account fraud (changing your billing address then running up charges).

Bank and finance fraud. Thieves may use your information to open a bank account in your name to write bad checks. They may also clone your debit card to make electronic withdrawals, draining your account. Some even create and use counterfeit checks with your account number, or take out loans in your name and then default.

Government documents fraud. Thieves can use your Social Security number to obtain and ID card or driver's license in your name, with their picture. They may even use your name to get government benefits. During tax season season, thieves steal billions by filing fraudulent tax returns early in the season using stolen identities.

Other examples of identity theft include applying for jobs with your social security number and name, using your information to get utility services, renting an apartment with your name, or even giving your information during an arrest. In this case, a warrant could be issued for your arrest!

The Cost of Identity Theft

Identity theft is truly one of the most pervasive crimes. It affects more than 11 million people in the United States every year, and the damage can be widespread. If you fall victim to identity theft, you risk losing not only the money in your bank account, but also your financial identity and good standing.

The real cost of identity theft includes:

Time spent repairing the damage. When you fall victim to identity theft, you spend your time tracking down documents and information necessary to fix the problem. The average victim spends between 60 and 200 hours getting the problem fixed.

Your credit is destroyed. If you don't discover the problem quickly, a thief can make off with your financial resources in no time. By the time you discover you're a victim, your credit scores could be in the toilet. You will have trouble getting new loans in the future. Your existing creditors may cancel your credit cards. You may start paying more for insurance.

The emotional cost. Don't underestimate the stress and heartache you'll go through as you deal with the aftermath of this crime. Studies find that the emotional grief of identity theft resembles the grief suffered by victims of a violent crime.

What to Do If You're a Victim

If you discover you're the victim of identity theft, take action quickly. There are few things to do immediately:

Place an initial fraud alert on your credit reports.

Order your credit reports to determine the extent of the damage.

Create an identity theft report.

Contact the credit bureaus on affected businesses.

The identity theft report will be submitted to the Federal Trade Commission (popularly known as the FTC) and the police when you file a police report. It will help you deal with credit bureaus, debt collectors and businesses that opened accounts under your name or gave the thief credit. This report will also be used to get fraudulent information removed from your credit, stop companies from collecting debts that resulted from the theft, get an extended fraud alert on your credit reports, and get information from companies about the accounts the thief abused or opened.

Next, you'll need to spend time contacting credit bureaus and businesses to report and correct the problem. You also need to contact your bank or card issuer if your debit or credit card was stolen. Reporting the problem quickly will limit your liability on fraudulent charges.​

If you believe your tax accounts were affected or your number was used for employment purposes, you'll have additional steps to take. You can contact the IRS Identity Theft Protection Specialized Unit at 1-800-908-4490.

If you receive a W-2 from an unknown employer, your Annual Notice of Earnings shows more wages than you earned, or you've had Social Security benefits adjusted or denied, contact the Social Security Administration at 1-800-772-1213 to address the problem.

How to Protect Yourself

The following are the best ways to avoid becoming a victim of identity theft.

Monitor bank statements and credit card statements. Check for suspicious activity, such as purchases you did not make. The faster you catch the problem, the easier it is to contain damage.

Use secure websites and be careful about open or public networks, such as the library or public Wi-Fi.

Use Unique, Strong Passwords. Managing different passwords for every site you visit frequently can be a pain. With apps like LastPass and 1Password, however, you can easily manage separate log-in information for every site you visit. And have a unique, strong, random password for each site as well.

Avoid phishing scams. Do not give out personal information online, over the phone or through the mail unless you know exactly who you are dealing with. Identity thieves often pose as bank representatives, for example, to get you to provide identifying information.

Identity theft protection services are not necessary, but they can give you some peace of mind. Just be aware of what these services can and cannot do. Identity theft protection services monitor public records, your credit reports, and even the dark corners of the internet for suspicious activity. They also usually help you fix the problem if you are a victim. These services can't catch all signs of fraud -- such as someone accessing your bank account -- and you may already have some protection from your bank or credit card issuer. These services also come with monthly or annual fees.

Use a Credit Freeze or Fraud Alert. Fraud alerts add layers of authentication before any new credit can be taken out in your name. A credit freeze prevents any new credit being issued, until you turn it off.

To learn more about credit freezes and fraud alerts, and how they can serve as an alternative to identity protection services, check out this article.

Recommended Resources

We recommend the following credit monitoring and identity theft protection services:

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